Tuesday, April 14, 2015

The mushroom growth of e-commerce websites and the emergence of niche sites for almost every vertical have made the online marketers think about the next biggest challenge in the world of digital marketing and that is customer retention rate optimization. I prefer to call this CRRO in short.

CRRO consists of strategies which helps any company to retain it's customers and increase the repeat flow of orders. Due to strong competition and wide variety of options, customers tend to change their mood often. CRRO helps to analyze the behavior of customers and helps them to segment and customize their products in a manner that initiates a positive flow of orders.

What is Customer Retention Rate?

Customer retention rate is the total number of customers you are able to keep during a period with respect to the number you had at the start of your period.

How to Calculate CRR?

The formula for calculating CRR or the customer retention rate is:

CRR = ((E-N)/S)*100

where:

Customers at the start of the reporting cycle - S

Customers at the end of the reporting cycle - E

New customers acquired during the reporting cycle - N

Example:

Let's proceed with an example to have a more clear idea. Suppose, my e-commerce company selling wallets online had 1,500 customers at the start of the reporting cycle. During the cycle that was 6 months long, I acquired 500 new customers. At the end of the cycle there were 1,900 customers.

Going with the above formula, we have the following values:

S = 1,500

E = 1,900

N = 500

Now, the CRR for my site will be:

CRR = ((E-N)/S)*100 or ((1900-500)/1500)*100 = 93%

Hence, the customer retention rate for my site is 93% or in other words, I was able to retain 93% of my customers.

Now for the next reporting cycle, my values will get changed and the new value of S will be 1,900. Similarly we will keep on calculating the new CRR.

CRR = ((E-N)/S)*100

Revenue Retention Rate (RRR)

Same as customer retention rate, we also have revenue retention rate that tells us the rate of renetion of money.

How to Calculate RRR?

It is calculated in the same way as the CRR.

RRR = ((E-N)/S)*100

where:

revenue at the start of the reporting cycle - S

revenue at the end of the reporting cycle - E

revenue from new customers acquired during the reporting cycle - N

Sometimes, it might happen that you can have high CRR but a low RRR which means the company was actually able to retain customers but their AOV (Average Order Value) was reduced. This means the company was able to derive low profits even after having a high retention rate.

A combination of CRR and RRR provides us some great insights as to where should we actually focus our strategy in order to generate the maximum revenue.

Flipkart, Amazon, Jabong, Yepme - Who is Getting the CRRO Right?

India's leading ecommerce brands Flipkart, Amazon, Jabong, Yepme are all busy bringing in new customers but are they implementing strategies to retain their existing customers and increase their average order cart value. Remember, if they are able to retain 1 million customers having an average order cart value of INR 200, overall value will be INR 20 million. On the other hand, if the average order cart value is INR 50 and the customers are 1.2 million then overall value will be 6 million. So, even after increasing the customers to around 20 lakh, the total revenue earned by retaining the customers and maintaining the average order value is far ahead. Henceforth, the next biggest challenge for ecommerce companies will be to retain its customers and ensuring they keep on ordering from the site.

Now, the question arises as to how we can do it. So, let's the see the various methods and strategies for customer retention optimization strategies.

1- Perform Cohort Analysis

Cohort Analysis is a great way to identify the customer retention rate of your customers during the past week, month or year. This analysis can be found under Google Analytics. For more help, please visit: Cohort Analysis Report in GA

2- Offer Customized Coupons and Incentives to Every Customer

A great way to increase repeat orders is to offer customized coupons and cashbacks to customers based on their order history. Suppose, if a new customer orders products worth $100 then you can issue a cashback of $20 on their next order (after determining your profit percentages). This way you will ensure that your customers keep on coming to your site and collect their cashbacks for future orders.

Soon, customers would be overlapped with so many cashback offers that you will need to plan something new for it. The best strategy is to think uniquely. How about offering customers free product of their choice within a specified price range after he has purchased a certain number of products and also keeping him engaged by telling him that if he purchases some more products then he is eligible to receive gifts from x range of products.

3- Cross Sell and Up Sell

Cross selling means selling 2 or more products instead of 1 product. Marketers can effectively use cross selling to ask the customers to buy XYZ product with the ABC product they are already purchasing.

Upselling means providing the customers with an option to purchase a high priced alternative of the same product choice of the customer in order to generate more profits.

4- Unleash the Power of Referrals

Referrals is a great way to increase conversions. Offer your customers incentives and discount coupons if they refer someone to sign up for your store. Also, provide referral points to every customers for every group joining. The more creative you can become with this strategy, the better conversions you will receive.

5- Provide Extra Incentives to Loyal Customers

How about providing some extra gifts and discounts to your loyal customers? Yes, for every company, the best customer is the loyal customer because besides increasing the retention rate, they also help to do the word of mouth promotion which in today's world is rare to find.

So, what are your strategies for customer retention rate optimization? Please share with us in the comments below.